Posted: October 26th, 2023

Towards efficient port pricing: a specific look into South African tariff methodology

Towards efficient port pricing: a specific look into South African tariff methodology

Port pricing is the process of determining the charges for the use of port facilities and services. Port pricing affects the competitiveness of ports, the efficiency of port operations, and the allocation of resources within the port sector. Port pricing also has implications for the welfare of port users, such as shippers, cargo owners, terminal operators, and shipping lines.

South Africa has a distinct system of port governance and its port authority pricing is regulated by the Ports Regulator of South Africa (PRSA). Transnet National Ports Authority (TNPA) is South Africa’s sole port landlord and provides infrastructure and marine services. Transnet Port Terminals (TPT) is the public terminal operator and is unregulated. In only some sectors, does TPT have competition from private terminal operators (Chasomeris and Gumede 2022).

The current port pricing methodology in South Africa is based on a Required Revenue (RR) model, which determines the annual total revenue that TNPA may raise through adjustments to the port authority tariffs. The total revenue is presently raised from shipping lines (22%), cargo owners (46%), and port tenants (including terminal operators) (32%) (TNPA 2021).

However, this methodology has been criticised for several reasons. First, it does not reflect the actual costs of providing port services and facilities, nor does it incentivise efficient port performance. Second, it creates substantial cross-subsidisation between commodities and different port user groups. For example, cargo owners pay higher tariffs than shipping lines and port tenants, while some commodities such as coal and iron ore pay lower tariffs than others such as containers and vehicles. Third, it does not align with international best practices and benchmarks, which suggest that port pricing should be based on activity-based costing and user-pays principles (Mthembu and Chasomeris 2023).

Therefore, this paper proposes a new port pricing methodology for South Africa that aims to achieve efficiency, equity, transparency, and competitiveness in the port sector. The proposed methodology has the following features:

– It adopts a dual-till model, which separates the revenues and costs of infrastructure services (such as dredging, breakwaters, quays) from those of marine services (such as pilotage, tugs, berthing). This allows for different pricing approaches for each type of service, depending on the degree of competition and regulation in each market.
– It applies activity-based costing for marine services, which allocates costs to each service according to the resources consumed by each activity. This ensures that prices reflect the actual costs of providing each service and that users pay for what they use.
– It uses a price cap mechanism for infrastructure services, which sets a maximum allowable price increase for each service based on inflation, productivity improvements, and quality standards. This provides an incentive for TNPA to reduce costs and improve efficiency, while protecting users from excessive price increases.
– It eliminates cross-subsidisation between ports and port user groups by setting prices that are proportional to the costs incurred by each port and each user group. This creates a level playing field for all ports and users and promotes fair competition in the port sector.

The paper evaluates the potential impacts of the proposed methodology on TNPA’s revenues, port users’ costs, port competitiveness, and social welfare. The paper also discusses the challenges and opportunities for implementing the proposed methodology in South Africa’s ports.

Bibliography

Chasomeris M., Gumede S. (2022) Regulation, Governance and Infrastructure Pricing in South Africa’s Ports Sector. In: Cariou P., Wolff F., Haralambides H., Notteboom T., Pallis A.A., Rodrigue J.P. (eds) Regulation and Finance in the Port Industry. Palgrave Studies in Maritime Economics. Palgrave Macmillan.

Mthembu S.E., Chasomeris M. (2023) Revisiting marine services pricing in South Africa’s ports. WMU Journal of Maritime Affairs.

TNPA (2021) Tariff Book 2021/22. Transnet National Ports Authority.

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